Dollar Exposure

A surety bond is a form of a guarantee, some people think it s insurance, but it is actually a line of credit. The bond guarantees different things depending on the insurance.

People often wonder how to go about getting a bond, and if it it difficult. Its not difficult, as you only need to apply to get one, well to start the process anyways. Often, your bonding agent can have the result for you the same day, but sometimes takes up to four days to find out the results. You will then be made aware of the premium you must pay, and will hash out the whole bonding agreement between you and the bond issuer. After all is said and signed, your bond will be issued to you in 24-48 hours.

In this agreement you are considered to be the principal, and as such you must pay a given amount of the bond to be reffered to as a premium. The bond then gives you a credit to surety which covers a greater amount with a guarantee. If you do not adhere to the terms of the agreement a claim can come up. If this becomes the case, the bonding company will look to you to pay the claim and and legal fees incurred.

You might be asking yourself, why have a bond if I must pay the legal fees? I say again, a bond is not insurance, it is credit. You are still required to pay any claims against your credit.

A way around a bond is to post cash, or even a letter of credit. The benefit to bonding is that you usually will not have to post collateral giving you more capital, and the premium found with bonds is not unlike the fee paid for a letter of credit.

Are bonds expensive? Well that depends on the type of guarantee. It also depends on who is being bonded. Being as its credit everyone has a different rate.

You need one in a few lines of work to be certain you will follow certain rules. The one most readily coming to mind is that of a general contractor.

A general contractor would be most interested in a performance bond and a mortgage bond would be geared towards a real estate broker.